A Few Things To Consider
A Buyers' Quandry
Statistics reveal that out of about 15 would-be business buyers only one will actually buy a business. It is important that potential sellers be knowledgeable on what buyers go through to actually become business owners. This is especially true for those who have started their own business or have forgotten what they went thorough prior to buying their business.
If a prospective business buyer is employed, he or she has to make the decision to leave that job and go into business for and by himself. There is also the financial commitment necessary to actually invest in a business and any subsequent loans that are a result of the purchase. The new owner will likely need to execute a lease or assume an existing one, which is another financial commitment. These financial obligations are almost always guaranteed personally by the new owner.
The prospective business owner must also be willing to make that "leap of faith" that is so necessary to becoming a business owner. There is also the matter of family and personal responsibilities. Business ownership, aside from being a large financial consideration, is very time consuming, especially for the new business owner.
All of these factors have to be weighed very carefully by anyone that is considering business ownership. Buyers should think carefully about the risks - and the rewards. Sellers should also put themselves in a buyer's position. The services of a professional business broker or intermediary can help determine the relative pros and cons of the transaction.
Copyright BBP 2003
Buyers Want Cash Flow
The first thing to keep in mind is that the vast majority of buyers want to buy cash flow. Sit down with your accountant or bookkeeper and begin to get your financial statements in order with cash flow the order of business. Cash flow is not the same thing as profit. Most buyers look at the profit and loss statement or tax return, and look at owners or family compensation. They will consider any excess compensation to employees and family members. Buyers will also look at large one-time expenses such as a new computer system, or remodeling. They will consider non-cash items like depreciation and amortization. Interest expenses will be reviewed, as will owner perquisites. These are items that a professional business broker considers when advising a selling client on a suggested selling price.
Appearances Do Count
The time to replace that old worn-out piece of equipment is before you decide to sell. Don't assume that a new owner will want to do it or that the price will be slightly lower because you haven't replaced it. The time to "spiff up" the business is now, even if you aren't selling. Fix the sign, replace the carpet, paint the place - make it look good. Even if you're not selling, it's just plain good for business, and you never know when the time to sell occurs. Keep-in-mind that anything that increases sales also increases profits and the all-important cash flow!
Everything has Value
There are other things that add value to your business. Don't discount the value of customer lists, proprietary products and/or techniques, well-maintained equipment, secret recipes, customized software programs, or good employees. These are termed "off-balance sheet items," and although not used in most pricing models, they add to value. Look at your business very carefully so you don't overlook those items that make your business more attractive to the buyer.
Eliminate the Surprises
Long before you put your business on the market -- eliminate the surprises! Review every facet of the business and remedy any problems that could appear during the sale process. No one likes surprises -- most of all potential buyers. Whether legal, accounting, environmental, or anything else - solve it now.
We as professional business brokers can assist you in the planning process. We know what buyers are looking for and are familiar with current market conditions.
Copyright BBP 2003
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The following is provided as a simple explanation of common leasing arrangements within small business transaction. it not intended to provide legal advice.
The New Lease
A new lease is created generally when the prior lease has expired or is about to and when there are going to be substantial changes to the existing lease. A new lease would be executed between the purchaser of the business and the landlord. It is a new document either drafted by an attorney or used in a standard form that is available at stationery stores and in many books. A new lease involves negotiations between the owner or purchaser of the business and the landlord.
The Sub-Lease
A sub-lease is nothing but a lease within a lease. For example, if the seller of a business is permitted to sub-lease the premises, he or she, as far as a new owner is concerned, is the landlord. In this case, the actual landlord is still dealing with the seller and has no relationship with the buyer. Obviously, the seller needs the permission of the landlord or lessor to assign or sub-lease.
The Assignment of the Existing Lease
This is the most common form of allowing a buyer the use of the premises in which the business is located. In an assignment, the seller is "assigning" all rights to the existing lease to the new buyer. Once the assignment is executed, the seller usually has no more rights in that lease. However, in most assignments, the landlord reserves "all rights" in the lease. In other words, the seller, who may be a tenant or an assignee, is still responsible to the landlord if the buyer does not perform.
Copyright BBP 2003
Seller Provided Financing Can Make Sense
When contemplating the sale of a business, an important option to consider is seller financing. Many potential buyers do not have the necessary capital or lender resources to pay cash. Even if they do, they are often reluctant to put such a hefty sum of cash into what, for them, is a new and untried venture. Why the hesitation? The typical buyer feels that if the business is really all that it's "advertised" to be, it should pay for itself. Buyers often interpret the seller's insistence on all cash as a lack of confidence in the business, in the buyer's chance to succeed, or both.
1. Seller financing greatly increases the chances that the business will sell.
2. The Seller offering terms will command a much higher price.
3. The interest on a seller-financed deal will add significantly to the actual selling price.
4. The tax consequences of accepting terms can be much more advantageous than those of an all-cash sale.
5. Financing the sale helps assure the success of both the sale and the business, since the buyer will perceive the offer of terms as a vote of confidence.
Call Miles, your business sales specialist at 772-419-8303 and take that all important 1st step. |
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